Palo Alto Networks Inc at Goldman Sachs Communacopia & Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Nikesh, one of the things you've said a couple of times now over the last six months is, you wish you had started the platformization strategy sooner. One can argue, looking at Palo Alto for the last three years, you've been selling three different platforms pretty consistently. So talk to us about what's different on the ground in 2024 with the platform conversations that you're having at some of your largest customers?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : If you think about one of the topics in security around the fragmentation of the long tail, we've talked about how the largest companies in security have a much smaller amount of market share than some of the other segments of software. So what has been some of the best practices that you've taken from outside the security industry on how to cross-sell and how to sell platform at the highest level of the organizations at your customers?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : I want to stay on this topic of transformation, catalyzing your land and expand with customers, and particularly on how it intersects with AI. So talk to us about what you're hearing from some of your largest customers on their AI investment plans. And how does that then impact how they want to spend on security?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Is an AI firewall different technically from a classic virtual firewall that's monitoring non-staff traffic?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Similar question on data center firewalls. As we spend time at the industry level thinking about the rollout of data centers to support all of these model training and different use cases, is there then a second derivative impact on the demand profile for your data center firewall business?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : I want to also spend a little bit of time on the AI use cases that you're exploring in-house. So maybe actually, we can start on the R&D side. Are there a couple of AI use cases that you're most excited about that your engineering team is working on over the next couple of years?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Are there any examples of AI applications today in-house at Palo Alto where you had thought that they would show more promise earlier and instead, it's actually taking a little bit longer than what perhaps the industry would have expected?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : So one of the areas where a lot of these themes intersect -- I'm thinking AI, pattern recognition, copilots, platformization -- is with Cortex and some of the work that you're doing in the SOC. Talk to us about how -- we're about a year on now from training and enabling all of Palo Alto sales people to go to Cortex. What are some of the limiting factors today in your ability to take share in what has historically been an incredibly sticky market? And do you still get pushback on -- well, Cortex looks great if you are fully embedded in the Palo Alto ecosystem, but it doesn't work great if I have to embed other vendors as well.

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Let me ask you a little bit about the thought process with the IBM deal because one could argue in a lot of these subsectors of security, where you're seeing an inflection, you'll are gaining share regardless. And so there is a trade-off between buying the share versus gaining it organically and paying S&M for it. So how did you think about that when it came to IBM? And are there other cases in Palo Alto's future where you think a similar unit economics dynamic might apply?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : I think part of the winds in SOC are tied to your endpoint product and how the interfaces between Cortex endpoint and XSIAM tie-ins together. Talk a little bit about how your conversations have changed post July 19. And internally, when you and your team look at the resiliency of the Palo Alto platform, how do you protect yourself against that black swan outage impact?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : How do you think about instilling resiliency into your own products and services given how much mission-critical positioning you have you at your --

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Fair I want to ask you a little bit. You mentioned spending more time with the system integrators over the past year. And I believe you're just coming off a sales kickoff in the beginning of the fiscal year '25. So what was some of the highlights coming out of sales kick off? How are you balancing what is an incredibly motivated talented group of enterprise salespeople at Palo Alto with some of the partnerships that you have on the system integrated side so that everyone wins? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 5:10PM, PANW.OQ - Palo Alto Networks Inc at Goldman Sachs Communacopia & Technology Conference

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Are there highlights from sales kickoff?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Very good. I want to come back to next gen --

Question: Gabriela Borges - Goldman Sachs Research - Analyst : An excellent point. I want to ask you a little bit about renewals, renewals. So one of the most interesting charts in the 4Q earnings presentation was the number of customers are moving to advanced attached subscriptions. So I'm thinking of URL going to advance URL. And the list price for advanced URL is on paper 50% more than classic URL. So how do you think about that conversation and renewals? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 09, 2024 / 5:10PM, PANW.OQ - Palo Alto Networks Inc at Goldman Sachs Communacopia & Technology Conference It's obviously a balance between extracting the value that you're providing and pricing the premium products appropriately. How do you balance that with the customer saying hey, on paper, you have to now pay 50% more for something similar. How do you navigate that conversation?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : How is that conversation then transitioned into the SASE conversation? So if I think about something like advanced URL functionality? And then the holistic way that you approach distributed network security with SASE, how do those two things come together when you sell SASE --

Question: Gabriela Borges - Goldman Sachs Research - Analyst : So on that note, every year, we have a conversation about how fiscal year planning is unpredictable. And every year, there are puts and takes to how you --

Question: Gabriela Borges - Goldman Sachs Research - Analyst : With all of that context, you're guiding to 19% to 20% RPO growth for fiscal year '25 -- you just printed 20%. You're guiding to essentially zero deceleration in the business. Talk us a little bit about how you're able to at the large numbers that you have guide to business continuing to grow at the same pace this year over the next 12 months as you just did in the July quarter?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Maybe share a little bit about the analysis.

Question: Gabriela Borges - Goldman Sachs Research - Analyst : What do you think is different about the next 12 months that allow you to start out with that starting point. If I think about the last several --

Question: Gabriela Borges - Goldman Sachs Research - Analyst : No, I'm trying to understand -- I'm just trying to understand what you want.

Question: Gabriela Borges - Goldman Sachs Research - Analyst : What do you think is unique about this year that's allowing you to guide to a better demand function based on all of the blocking type?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : I want to spend a couple of minutes on how you think about unit economics of the business. And we've talked before about how, as you cross-sell into our largest customers, does an incredibly rich LTV to CAC, so to speak, that comes off of that business. And then we've talked about the renewals business as well. What are some of the metrics that you look at internally to measure unit economics? It's not as clean as a pure SaaS model where you just look at LTV to CAC. So a little bit of insight on how you --

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Well, it's all subscription, whereas you have a --

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Fair. So you made an interesting comment on consolidation last week. And specifically, some of your peers or the industry companies in security that are at a smaller scale and are looking at the scale that you've accomplished and saying, how do we get there? Share with us a little bit about how you think of the future of the industry in terms of consolidation?

Question: Gabriela Borges - Goldman Sachs Research - Analyst : Very good. Please join me in thanking Nikesh for his time, Nikesh, thank you.